New pods on the block

The world beyond Citadel and Millennium

I keep meeting friends who have left Citadel and Millennium to work for other pod shop hedge funds. Here’s the thing. I know who Point72 and Balyasny are, and they have been clients of mine in a previous life. But many of the firms my friend’s name I had never heard about!

The hedge fund industry has always had marque new launches. I am old enough to remember when the Goldman Sachs proprietary trading superstars had huge launches like Eton Park and TPG Axon that have since disappeared. Eric Mindich of the former was once the youngest Goldman partner in history aged only 27. Feeling the pod shop gold rush their peers are pivoting. Goldman Sachs trading wizards Ed Eisler and Sam Wisnia managed to move Eisler Capital’s $3-4bn of assets under management (AUM) into a pod shop model in recent years.

Big Citadel and Millennium cubs have emerged in recent years. There is $12bn ExodusPoint, $5bn Jain Global, and $6bn Taula Capital. The latter got half its money from Millennium albeit it is more a macro fund and not a direct pod shop competitor.

What I find fascinating though is the sudden growth of multi-manager pod shops that have been around for decades but were small until now. Many of these don’t have the storied pedigree of being former heads of trading at Goldman Sachs or being CIOs at Citadel and Millennium. These include names like Hudson Bay Capital and Verition Fund Management. In 2018 the two firms were managing $2.5bn and $0.5bn respectively. Today, Hudson Bay Capital has $25-30bn and Verition has $12bn!

I recently wrote about how the largest two pod shops - Citadel and Millennium are similar but very different – so you may want to check out that piece as well if you have not. Citadel and Millennium

In this piece, I have focused on the new kids on the block in the pod shop world – who are they, how did they get so big and what makes each of them unique?

Returns and volatility

After many years of mixed investment returns, ExodusPoint is back. At the end of April, it was up 6.4% well ahead of its peers. Some outperformance is expected given its focus on fixed income. Founder, CEO, and Chief Investment Officer Michael Gelband a former head of fixed income trading at Lehman Brothers had a storied run of almost a decade building Millennium’s fixed income business before launching ExodusPoint in 2017/18. The firm had struggled in equities and moved its focus more to fixed income last year with its co-founder Hyung Lee, the head of equities moving to an advisory role. Nevertheless, ExodusPoint is outperforming the Citadel fixed income fund by almost 200bps this year.

Both the goliaths of the multi-manager pod shop universe have underperformed the new kids on the block this year. According to Bloomberg News Multistrat Hedge Funds Balyasny, Schonfeld Turn a Rocky April Into More Profits - Bloomberg as of the end of April, Citadel’s flagship Wellington Fund and Millennium’s main fund were up 0.4% and down -1.4% respectively. This has lagged flagship funds across most competitors including Point72, Balyasny, Schonfeld, and Hudson Bay Capital. The underperformance versus Point72 and Balyasny of 300-500bps this year is notable given these two firms have been expanding in macro but remain predominantly skewed towards equities, reflecting the roots of their founders.

Longer-term there is still Citadel (20% returns net of fees since 1998) and then the rest of the pack. Millennium’s longevity and low volatility are key to its positioning albeit the likes of Point72 are showing better returns. Balyasny is also on its way back. ExodusPoint had lagged making their 2025 outperformance timely.

Hudson Bay Capital, one of the fastest growing multi-manager firms made its name from being up 11% during the Global Financial Crisis (GFC) of 2008. Returns were mediocre from 2013 to 2019 with many years of mid or low single returns dragging down the long-term track record to 11% by 2019. But what kept the firm going were the very few and shallow drawdowns. Since then, returns have been solid. Verition Fund Management has seen a similar return profile with annual returns over the last 17 years of 12.9%. Like Hudson Bay Capital it has shown limited correlation to markets. Both firms did well during recent market selloffs including the one at the start of the Covid-19 crisis.

In a hedge fund industry that has been criticized as leveraged long and beta, low double-digit net returns with low volatility have been extremely attractive to institutional investors. This is particularly so at a time when some of the most storied names in equity long/short investing like Lone Pine and Tiger Global have seen huge volatility in returns and are struggling to recover fully from the 2022 Nasdaq sell-off. Lone Pine has also been dealing with a succession from their legendary founder and got hit with huge client redemptions after the 2022 drawdown.

That said - with the era of zero interest rates over - where multi-manager pod shops can’t deliver those numbers, allocators are running out of patience. For instance, in the four and a half years since shifting from macro fund to pod shop Eisler Capital has averaged annualized returns of 6%. The fund is down in 2025 and likely seeing a decent amount of redemption requests.

Pod shops are trying to move to more long-term client commitments but the substantial fees the industry charges make delivering net returns so important. For instance, Bloomberg News reported that Eisler Capital paid out $500m of fees and pass-through expenses over the last two years, which was significant on a relatively small asset base. Similarly, in 2024, virtually all of Balyasny’s gross returns disappeared in fees and pass-through of costs leaving only crumbs for their clients.

The reincarnation of SAC

The largest of the pack beyond Citadel and Millennium is Point72 with $37bn. It has also produced the best returns. Since starting to take in external money in 2018 Point72 has delivered compound returns of 16% per annum including strong performances over the last 18 months. The firm hit the headlines last year when founder Steve Cohen moved from player to coach.

But Point72 can hardly be considered a new kid on the block. I wrote about its predecessor SAC Capital a few months Steve Cohen - a decade on and in many ways they were the first pod shop to scale even more before Citadel and Millennium. SAC Capital was founded in 1992 and by 2007 was managing $17bn with 1,200 employees.

Today around one-third of Point72’s assets are from Steve Cohen and partners, which is above the proportion for most of its peers. This tendency goes back decades with Cohen and partners contributing around half of the $17bn in 2007.

Point72 has significantly less in terms of AUM than Citadel but with around 3,000 employees it has a similar headcount. Point72’s AUM per employee is almost half that at Citadel but very similar to Millennium.

Steve Cohen’s pedigree in equity long/short investing has been legendary on Wall Street for decades but it has been aggressively expanding its macro trading (Rates, FX, liquid credit) team. Since hiring Mo Grimeh as head of macro trading in 2020 Point72’s number of macro pods has increased fivefold and they are over a quarter of the firm’s total now. Grimeh had previously been deputy CIO of fixed income at Millennium but what is particularly fascinating is that he was one of many Lehman alumni passing through Millennium in case you thought these firms only hire from Goldman Sachs! Grimeh’s photo exiting the Lehman Brothers building during the GFC reminds you of the love that Lehman people had for their firm Grimeh global head of emerging-market debt at Lehman Bros. As well as Gelband and many members of his top team at ExodusPoint, other Lehman alumni include Millennium President and COO Ajay Nagpal.

The comeback kid

Balyasny is one of the oldest pod shops. It launched in 2001, performed well during the GFC, and generated low double-digit returns with low volatility. But the company almost had a near-death experience in 2018 with AUM shrinking from $12bn to $6bn and Ken Griffin highlighting it as a firm that was imploding owing to its poor culture. Since then, Balyasny has rebounded. It raided Citadel for a new head of equities and chief risk officer. Institutional Investor wrote a good summary of this The Curious Case of Dmitry Balyasny

Balyasny is in the press a lot these days because it is at the forefront of the bidding war for talent in the industry. AUM has exploded in line with peers in recent years and is over $23bn. Balyasny like its founder had a reputation for day trading and 70%+ plus of its risk has traditionally been in its equity long/short books. But more recently like Point72, it has been expanding aggressively outside of equities. Dmitry Balyasny said a few years ago that equities books are now just over half of the firm’s risk and macro trading up to 30% of Balyasny’s risk. As well as hiring traders from peers Balyasny is the only one of the pod shops trying to copy Citadel’s expansion into physical commodities Balyasny Starts Physical Gas Trading Balyasny is also following others like Point72 into the area of venture investing.

The Gerber statistic and Harry Markowitz

Hudson Bay Capital is fascinating because not only had many of us not heard much about it until recently, but its founder Sander Gerber has an interesting take on risk management, which led to an unlikely partnership with the godfather of portfolio theory Harry Markowitz.

But before going into this, it is worth highlighting who they are. The firm has opened to new money in recent years, and seen an eightfold increase in AUM over the last 7 years. It is a multi-manager fund, but its pods are not siloed. There is a huge amount of co-ordination and centralization of ideas even more so than Citadel and very different to a firm like Millennium. This is one of the reasons the firm has managed to scale without a huge headcount. It has around 320 employees, which implies an AUM per employee of over $90m, and similar to a multi-strategy firm like Marshall Wace but 5x higher than most pod shops. Hudson Bay Capital has also expanded aggressively into private credit and real estate. The AUM I refer to includes this, although the pod shop business is likely most of it.

In a recent podcast Inside the Gerber Statistic the founder tells the story of how his early career as an options market maker on the floor of exchanges was invaluable for his understanding of volatility and how traditional financial models of risk didn’t have enough emphasis on technical factors or outlier events that play havoc with normal distributions. Gerber says:

“I actually, created a statistic that Gerber statistic that helps to understand diversification between our deal codes, between our investment positions. A lot of our competitors are tied to factor-based modeling, which ultimately underneath it, is reliant on regression analysis. Regressions are straight line fits through normalized sets of data. And human relationships don’t follow straight lines. And certainly, market relationships don’t follow straight lines. So, using that as the underpinning of a risk management system is just incorrect. And so, we’ve created a whole different structure that, as I said, we’ve used since 1998. And I think that’s given us the ability to weather storms and profit from it in ways that our competitors can’t.”

Gerber’s deal code system focused on how each trade is hedged, risk in terms of the reasonable worst-case scenario, and a batting average that didn’t just look at net gains in dollar terms but in terms of the number of winning ideas being above the number of losing ideas. The Gerber statistic focused on smaller datasets taking out the noise of correlations between different assets based on small historical moves.

Gerber was not a believer in how historical correlations were valued in the portfolio theory of expected return and risk. He reached out to the godfather of the space Nobel Prize winner Harry Markowitz. Expecting him to disagree Gerber was surprised when Markowitz said that his 1952 paper also said, “that correlation should be determined by the judgment of practical men,” i.e., not blindingly follow past correlations. Gerber and Markowitz went on to write several papers together on the Gerber statistic within modern portfolio theory. This is another good summary of this partnership: A Hedge Fund Manager Reluctantly Challenged — Then Collaborated With — Harry Markowitz | Institutional Investor

Second time lucky

Nicholas Maounis doesn’t seem like the obvious choice for leader of the fastest-growing pod shop in the world. It is almost two decades since his previous multi-strategy hedge fund Amaranth blew up in speculator fashion. It was supposed to be a multi-strategy firm but one trader in Calgary, Canada making leveraged bets on the spread between different natural gas contracts went spectacularly wrong and Amaranth lost $6.4 billion in a single week.

Verition started with Maounis’ own money in 2008 and took a decade to get to $0.5 billion. Maounis was cautious given his prior experience. Investors were cautious given the previous experience. But like Hudson Bay Capital, Verition made money in early 2020 and has built up a long track record of low volatility and limited drawdowns. The firm has an army of risk managers like their pod shop peers.

Verition looks much more like a Millennium than Hudson Bay Capital. With a headcount of 750 and 450 investment professionals, its AUM per employee ratio of $16.8m and AUM per investment professional ratio of $28m is similar to pod shop peers. Verition has been growing its number of trading pods rapidly and their average size is roughly half the size of those at more established peers like Millennium and Point72.

The best summary of Verition’s recent growth and the founder’s history was in the Wall Street Journal Verition Fund.

Recent launches

Pod shops are really difficult to build and scale and there is huge inertia. For instance, Millennium has kept growing and growing despite some major staff departures in recent years.

There are comparisons made between recent fund launches like Jain Global and Taula Capital but often comparisons can be apples with oranges. These large fund launches were similar in size but different in ambition. The former has hired 300 people across dozens of different strategies in fixed income, equities, quant, and commodities and has an AUM per employee similar to ExodusPoint, while Taula is focused on a smaller number of strategies with a smaller headcount and infrastructure following the path of fixed income funds like Capula.

Both these strategies are difficult and investment performance is king. But let me end with something a former colleague from Credit Suisse said about Bob Jain from when he ran the global proprietary trading group at our firm - he isn’t just a great trader, he is amazing at picking up young talent, incentivizing and mentoring them. Perhaps that is the lesson of the multi-strategy and pod shop hedge fund universe. BlueCrest is the ultimate high-alpha leverage trader today but even there Mike Platt runs very little of the money directly and is as much a risk manager as a trader as I discussed last week in https://rupakghose.substack.com/p/the-best-trader-in-the-world.